Black Coffee: Do Not Pass Go. Do Not Collect $200.

Welcome to another rousing edition of Black Coffee, your off-beat weekly round-up of what’s been going on in the world of money and personal finance.

And away we go …

“Faith is to believe what you do not see; the reward of this faith is to see what you believe.”

— St. Augustine

“The Bank collects all taxes, fines, loans and interest. The Bank never ‘goes broke.’ If the Bank runs out of money, the Banker may issue as much more as may be needed by writing on ordinary paper.”

— from the Rules of Monopoly

Credits and Debits

Debit: The median household income in Palo Alto, California, is $137,043. That’s more than twice as much as the US at large, but it’s still not nearly enough to buy a new house there because median home sale prices hit an all-time high at $2.67 million in 2017. Perhaps that’s why Palo Altans making $349,999 consider themselves ‘lower middle class.’ Heh. Cry me a river.

Debit: On a related note, ten miles south of Palo Alto is Sunnyvale, where a two bed, two bath, 848 square foot home was recently listed for $1.45 million. It sold in two days. For $2 million. That’s $2358 per square foot. By the way, if you think that signals a healthy housing market, I’ve got a 36 square foot backyard shed in Petaluma I’m selling for $999,999. Hey … realtors say it’s never been a better time to buy!

Debit: Those outrageous prices might also be why pending US home sales fell 4.7% in January — that’s the lowest reading since October 2014, and the biggest monthly decline since 2010. Uh oh. You know what that means: bad news for those house flipper television shows.

Debit: Speaking of plunging prices, the Dow ended a 15-month win streak after closing 380 points lower on the last day of February, snapping its longest monthly win streak in nearly six decades. Then the Dow kicked off the first two days of March by losing another 420 points on Thursday — and 71 more on Friday.

Credit: Some analysts are blaming the latest stock market decline on US plans to impose stiff tariffs on steel and aluminum which, naturally, drew sharp protests globally. Of course, there’s a difference between free trade and fair trade — and tariffs are a legitimate way to level the playing field. Never mind that the long decline of the US steel industry was primarily due to improving technology — not trade.

Credit: Meanwhile, Steve Westly, a former board member of the largest US public pension fund, made a stunning admission this week when he said, “The pension crisis is inching closer. CalPERS just voted to increase the amount cities pay to the agency. Cities point to possible insolvency if payments keep rising but CalPERS is near insolvency itself. It may be reform or bailout soon.” Yep. And I’m betting on “bailout.”

Credit: Too bad CalPERS simply can’t print all the cash it needs like the US does. Unfortunately, America has become so reliant on the printing press that, as David Stockman notes, “Uncle Sam’s scheduled debt this week will nearly equal his cumulative borrowing through 1970.” Uh huh. That covers every IOU generated during the nation’s first 188 years and 37 presidents — in the last week. Think about that.

Credit: Let’s face it; as Tom Lewis points out, “Few of us consider how extrinsic the value of money really is. At one time, our money was backed by the tangible value of gold or other precious metals, legal tender for anything of equal value. That’s not the case any longer. In reality, we are dealing in valueless fiat currencies.”

Debit: Of course, the US dollar has lost 97% of its value since the establishment of the Federal Reserve in 1913. And the greenback’s stewards decided to pull its gold backing in 1971, officially making the “Almighty Dollar” the king of all fiat currencies. Apparently, America’s monetary officials forgot the cardinal rule of reserve currency management:

Debit: If you want proof that the value of fiat currency is rapidly diminishing with each passing day, simply look to Pyeongchang, South Korea, which built a brand new 35,000-seat Olympic stadium last year for $109 million; it was used just four times. Now it’s being demolished. That puts its cost at an astonishing $10 million per hour of use. The evidence is damning — and hiding in plain sight. Yet few can see it.

Debit: You can bet other nations can see the dollar’s demise is rapidly approaching; that’s why it’s being abandoned as the global reserve currency, eliminating their need to hold dollars or Treasuries. As a result, foreign demand is drying up and Treasuries, notes, and bonds are being dumped, leaving the Fed as the primary buyer of US debt. That, folks, doesn’t bode well for the 37-year bull market in bonds.

What is the best way to pay for new road infrastructure and highway maintenance?

Gasoline tax (56%)

A combination of both (28%)

Vehicle Miles Traveled tax (16%)

More than 1500 Len Penzo dot Com readers responded to last week’s question and it turns out that more than half of you say, when it comes to funding the highway system, a gasoline tax is the only way to go. I’m agnostic on this one, but if I had to choose, I’d go with the gasoline tax too.

Two medical students were walking along the street when they saw an old man walking with his legs spread apart. He was stiff-legged and walking slowly.

One student said to his friend: “I’m sure that poor old man has Peltry Syndrome. Those people walk just like that.”

The other student says: “No, I don’t think so. The old man surely has Zovitzki Syndrome. He walks slowly and his legs are apart, just as we learned in class.”

Since they couldn’t agree they decided to ask the old man. They approached him and one of the students said to him, “We’re medical students and couldn’t help but notice the way you walk — but we couldn’t agree on the syndrome you might have. Could you tell us what it is?”

The old man said, “I’ll tell you, but first you tell me what you two fine medical students think.”

The first student said, “I think it’s Peltry Syndrome.”

The old man said, “You thought — but you are wrong.”

The other student said, “I think you have Zovitzki Syndrome.”

The old man said, “You thought — but you are wrong.”

So they asked him, “Well, old timer, what do you have?”

The old man said, “Well, I thought it was gas — but I was wrong, too!”

(h/t: boomer sooner)

Other Useless News

Programming note: Unlike most blogs, I’m always open for the weekend here at Len Penzo dot Com. There’s a fresh new article waiting for you every Saturday afternoon. At least there should be. If not, somebody call 9-1-1.

Hey! If you happen to enjoy what you’re reading — or not — please don’t forget to:

Every week I feature the most interesting question or comment — assuming I get one, that is. And folks who are lucky enough to have the only question in the mailbag get their letter highlighted here whether it’s interesting or not! You can reach out to me at: Len@LenPenzo.com

China has headed the list, of course, for a long time. Since they are still accumulating US debt (as of latest figure Dec/17), I assume it’s to either blackmail the US (“you mess with us, we dump a few hundred billion of your notes on the market), OR they aren’t quite to the point of enough gold accumulation to fully back their currency, and start easing toward the exit door in terms of US paper debt. Since they have been vacuuming up western gold for years, plus keeping all internal production in house (China has been the largest mine producer of gold for years), they must have a long term game plan in mind other than “we like bling” !

But other interesting things you find on this list are which countries the FED/US govt is currently using to hide some of the debt. Take #3 on the list, for example. Ireland holds 326 BILLION dollars of US debt….about 1/4 that of China.

Seriously ?? The GDP of Ireland is slightly less than that figure, it exports annually only about 1/3 of that debt holding…..so WHY in the world would Ireland have the need….or the ability….to hold that much US paper unless ‘somebody’ (like the FED) was laundering money thru them ? Well the obvious answer is: The Fed is using them to hide debt. Just like they used Belgium a couple years ago (now moved from #3 to #14). Saudi Arabia….a country we do happen to buy a lot of oil from…..has consistently been down in the 8-10 range.

The Cayman Islands also is an interesting note. They don’t export much of anything, but are always about #3 or 4 on the list….because of their huge banking economy. Great place to hide illegal drug profits, and great place for the FED to park quietly created funds to ‘buy’ US debt.

Here’s an idea. How about cutting spending instead of cutting taxes? We wouldn’t have a debt problem if they tried that little trick. Think about all of the the unconstitutional activities the federal government is currently doing (and paying for. The Constitution only confers 17 powers to the federal government but we now have 4,000 agencies, federal departments, and programs. Smaller government is the answer. But it’s another example of people not seeing something in plain sight.

You’ll get no argument from me, Shaun. If the government suddenly contracted to its Constitutionally mandated size, more than 2 million people outside of uniformed military would be instantly out of a job.

The housing picture isn’t getting better and most likely will get worse from here because the benefits of historically low-interest rates is behind us. The low end of this market is driven by cheap credit from Fannie, Freddie, and the FHA all insuring 3.5% down payments from borrowers that lack substantial collateral. The situation now is people who can barely pay the rent are being encouraged by the government to buy a house they can neither afford or maintain. It’s a house of cards.

Re: pensions. Does anyone still wonder why the markets and bonds are being levitated? Both are in bubbles. Stocks should be at 12,000 and interest rates at 5%. If either happen, it’s bye bye bye! So the Fed must keep creating money to keep the train on the tracks. All this printing is finally starting to create some serious inflation and the Fed is going to soon lose control.

The US cannot afford 5% interest rates — that would result in more than $1 trillion per year just in interest payments on the National Debt. So what happens when inflation really gets rolling? If the Fed chooses to defend the dollar and keep raising interest rates, the US economy will be strangled — but if they keep interest rates low, then the dollar will die. The Fed is trapped; there is no way out short of a system reboot — or revaluing gold significantly higher.

The US imports only 20% of its steel. For the tariffs to have any chance of closing that fairly small deficit, the steel companies will have to invest the potential profit that can be realized from the imposed tariffs in expanding their capacity. I doubt they will do that — so I agree with Schiff.

Disclaimer

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